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July 20, 2019 | Trading Desk Notes July 20, 2019

Victor Adair, author of The Trading Desk Notes, began trading penny mining shares while attending the University of Victoria in 1970. He worked in the mining business in Canada and the Western United States for the next several years and also founded a precious metals trading company in 1974. He became a commodity broker in 1977 and a stock broker in 1978. Between 1977 and his retirement from the brokerage business in 2020 Victor held a number of trading, analytical and senior management roles in Canada and the USA. Victor started writing market analysis in the late 1970’s and became a widely followed currency analyst in 1983. He started doing frequent media interviews in the early 1980’s and started speaking at financial conferences in the 1990’s. He actively trades his own accounts from The Trading Desk on Vancouver Island. His personal website is

Summer Doldrums??? Gold surging to a new 6 year high up >$50 in 3 days, Silver up 8% on the week, major US share indices hitting new All Time Highs with buybacks on pace for another record year even as China/US trade talks stall, Crude oil down 10% on the week on signs that US/Iran will talk…even as the Rumble in the Gulf ramps up, and then there’s Williams’, “be aggressive early,” speech 2 weeks ahead of the FOMC meeting briefly driving odds of a July 50bp cut to 70%. Yikes!

Gold rallied nearly $200 (16%) in 2 months with Comex open interest up 215,000 contracts (~50%) to a fresh 3 year high…with COT data showing speculators buying aggressively since the late May lows. Silver played “catch-up” with a vengeance this week jumping as much as $1.50 from last week’s close…but both metals corrected hard late Friday making this look like some kind of a blow-off top.


WTI crude oil had a $6.50 range between this week’s high and low…trading lower each passing day…to end the week at the lowest levels in a month down ~10% from last week’s close.


The currency markets were a “chopfest” this week…or a “tempest in a teapot” as they churned up and down within what seems to be an increasingly narrow range…surely we’re due for a breakout…one way or the other!

The Canadian dollar hit a 9 month high last week after rallying 3 cents off the end-of-May lows…but couldn’t make a new high this week…chopping back and forth within a ½ cent range. Open interest has surged ~65,000 contracts (CAD$6.5 Billion notional value) since June 19th  with speculators buying aggressively…swinging from being net short to net long for the first time in 15 months. CAD mostly sustained it’s 3 cent rally this week even though WTI prices dropped ~10%…meaning that shrinking interest rate differentials with the USD and a “generally” weaker USD since late May have been the key drivers of the CAD rally (along with that aggressive spec buying!)


My trading “theme” for the past several weeks (see previous blogs) has been that the aggressive repricing of future interest rate expectations has been the “irresistible force” that has impacted all markets…and that this HUGE move has gone too far too fast and therefore we would see “mean reversion” trading opportunities across markets. Part of the “evidence” for this theme has been the MASSIVE flow of capital into all kinds of bond funds, new record highs in the amount of negative yielding bonds, negative yield curves, etc.

The end of the bond rally? Most runaway bull markets don’t just make a “Vee” shaped top and drop like a stone…there is almost always a failed bounce back following the initial break from the highs. That may be where we are on the bond chart if you see 157 as the top followed by an initial drop to 153. If the bounce back to 155 now rolls over and takes out 153 then we could see mean reversion trades showing up everywhere…not just in bonds.


My short term trading: I made money shorting WTI this week…gave a chunk of that back when I was stopped out of bullish USD trades (thanks to the “be aggressive early” speech from NY Fed president John Williams that drove the USD down) and had unrealized gains at the end of the week on short CAD and short S+P positions. I also remain short a nearby OTM WTI put that I had used to hedge my short WTI futures trades this week. If WTI is steady/better next week the premium should quickly evaporate out of that option…if WTI shows more weakness I’ll cover the position.


Trades I’m looking to make: If anything, it feels like the stage is set for volatility to jump. I’ll be looking at positioning risk for trading opportunities…meaning that I think a lot of recent positioning might have to be reversed…in the Bob Farrell sense of, “The public buys the most at the top!

PI Financial Corp. is a Member of the Canadian Investor Protection Fund. The risk of loss in trading commodity interests can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. In considering whether to trade or the authorize someone else to trade for you, you should be aware of the following. If you purchase a commodity option you may sustain a total loss of the premium and of all transaction costs. If you purchase or sell a commodity futures contract or sell a commodity option or engage in off-exchange foreign currency trading you may sustain a total loss of the initial margin funds or security deposit and any additional fund that you deposit with your broker to establish or maintain your position. You may be called upon by your broker to deposit a substantial amount of additional margin funds, on short notice, in order to maintain your position. If you do not provide the requested funds within the prescribe time, your position may be liquidated at a loss, and you will be liable for any resulting deficit in your account. Under certain market conditions, you may find it difficult to impossible to liquidate a position. This is intended for distribution in those jurisdictions where PI Financial Corp. is registered as an advisor or a dealer in securities and/or futures and options. Any distribution or dissemination of this in any other jurisdiction is strictly prohibited. Past performance is not necessarily indicative of future results


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July 20th, 2019

Posted In: Victor Adair Blog

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